Tax Lawyer Blog

A Blog written by the Tax Attorneys for Individuals and Businesses

"Good Motives" are Not an Excuse for Unpaid Employment Taxes

A recent Texas case clearly demonstrates how unforgiving the courts can be when it comes to unpaid employment taxes.

McClendon v. U.S.

In May of 2009, Dr. Robert McClendon learned that the Chief Financial Officer of his medical practice had been embezzling money from him, and that his practice owed roughly $10 million in unpaid employment taxes to the government. McClendon loaned $100,000 of his personal funds to the practice to pay his May 15, 2009 payroll, closed the practice and remitted its receivables to the IRS to help pay down the tax liability.

Tax penalties under 26 U.S.C. § 6672 were assessed at $4,323,343.70. McClendon paid a small percentage and then sued the government for a refund and abatement of the balance.

Trust fund taxes belong to the U.S.

Under 26 U.S.C. § 3102(a) and 26 U.S.C. § 3402(a), employees are obligated to withhold social security and income taxes from their employees' wages. These taxes are held in trust and must be paid over to the government, or the employer faces a penalty equaling the entire amount of the unpaid taxes.

The Section 6672 Penalty

The Section 6672 Penalty may be imposed on any "responsible person" who willfully fails to collect, account for, and pay over trust fund taxes. McClendon agreed that he was a responsible person for his practice, but argued that his failure to pay the back taxes to the IRS was not willful:

  • First, McClendon claimed that his loan to the practice was limited to payroll payments, and that the funds were therefore encumbered. The court disagreed, ruling that allowing responsible persons to evade a finding of willfulness and liability through preferential lending arrangements would "undermine the purpose of § 6672 in assuring that trust fund taxes are paid to the government."
  • Second, McClendon attempted to use the "reasonable cause" defense by arguing that he acted "morally and generously" by using his personal funds to pay the medical practice’s staff. The court did not accept this argument either, stating that good motives will not exonerate a taxpayer who "consciously decides to use unencumbered funds to pay a creditor other than the government."

The court acknowledged that Dr. McClendon's motives were admirable, but clearly stated that they were still not legally relevant.

San Francisco Employment Tax Attorneys

McClendon’s medical practice was finished by theft, mismanagement and a tax dispute. Tax issues have destroyed many businesses. Don’t let it happen to yours. Contact the employment tax attorneys at Moskowitz, LLP today.

Highest sentence on record for tax fraud gets #1 spot on the IRS Top Ten

The IRS’s Top Ten Identity Theft Prosecutions of 2015

We conclude our series on the IRS Top Ten Identity Theft Prosecutions of 2015 with the highest sentence received to date for identity theft and tax fraud.



James Lee Cobb III



Tampa, Florida


What he did

From around January 2011 through November 2013, convicted felon James Lee Cobb III and his wife Eneshia Carlyle conspired with others to obtain the personal identification information of an estimated 7,000 individuals. They filed fraudulent tax returns, claiming approximately $3 million in false tax refunds.


How he did it

Cobb and his wife obtained the personal identification information of 7,000 people from a number of medical institutions, including a VA Hospital, the Florida Hospital Tampa, a medical billing company and at least one out-of-state ambulance service. Cobb, his wife, and other co-conspirators filed fraudulent tax returns, claiming approximately $3 million using the stolen identities. At the time, Cobb was on supervised release from a prior federal conviction.

Police investigators found the names and social security numbers in Cobb’s home, as well as a loaded handgun and a semi-automatic AR-15-style rifle with a fully-loaded 30-round magazine.

Cobb was caught following an extensive coordinated investigation by the Internal Revenue Service, Tampa Police Department, Bureau of Alcohol, Tobacco, Firearms, and Explosives, Inspector General of the U.S. Department of Veterans Affairs and Tampa Bay Identity Theft Alliance.


The charges

Cobb pleaded guilty to:


The sentence

Cobb was sentenced to 27 years in prison, his sentence most likely increased due to the use of stolen healthcare information. Note that Cobb’s firearm charge, in and of itself, carries a sentence of up to 15 years in prison.


Criminal Tax and Financial Fraud Defense

Identity fraud schemes are usually accompanied by violations of other laws, which also carry substantial penalties such as extensive time in prison and significant fines. Contact the criminal tax defense attorneys at Moskowitz, LLP to learn more.